Key facts
- Former NITI Aayog vice chairman Arvind Panagariya advocates for reviving PSU and PSB privatization.
- He proposes establishing an independent privatization ministry to expedite disinvestment.
- Panagariya attributes capital outflows to private equity exits and increased FDI by Indian firms abroad.
- He believes the Indian rupee is no longer overvalued after recent depreciation.
- Concerns about monsoon impact on inflation are minimal due to strong buffer stocks and water reservoirs.
The Indian government needs to revitalize its privatization program for public sector undertakings (PSUs) and public sector banks (PSBs) to foster economic reforms, according to Arvind Panagariya, former vice chairman of NITI Aayog. Panagariya, currently a professor of economics at Columbia University, emphasized that this initiative is crucial for India's economic modernization as part of the 'India@2047' movement.
He suggested creating an independent privatization ministry to accelerate the disinvestment agenda, noting that the current Department of Disinvestment has struggled to maintain momentum. Panagariya believes that aggressive privatization should proceed irrespective of geopolitical uncertainties like the West Asia crisis.
Addressing concerns about capital outflows from India, Panagariya explained that while gross FDI has been strong, foreign investors often withdraw capital through exits from private equity investments, particularly when firms go public via IPOs. He noted an acceleration in IPO activity in India over the past two years, leading to higher-than-usual exits. Additionally, increased FDI by Indian firms abroad has also contributed to capital outflow.
Panagariya also pointed to significant foreign portfolio investment (FPI) outflows in the last two years, attributing them to Indian equities becoming overvalued. He stated that a valuation correction has since occurred, and the recent devaluation of the rupee has made Indian equities more attractive to foreign investors. He anticipates these outflows to stabilize in FY27 and believes the rupee is no longer overvalued.
Regarding the monsoon forecast, Panagariya expressed optimism, citing good water reservoir levels, increased sown area, and robust buffer stocks, which mitigate concerns about inflation impact.